Industrial incentive scheme covers scrap by-product sales for tax deferral when treated as part of "product".

The Madras HC held that sale of scrap generated as a by-product in the manufacturing process could qualify for sales tax deferral under the industrial incentive scheme where the term "product" was construed purposively. A manufactured by-product that is a distinct commercial commodity is not excluded merely because it is not the principal output. The Court noted that the earlier order in the appellant's own matter had already required reconsideration on the basis that steel scrap formed part of "product" for the eligibility certificate. The restrictive view limiting the benefit to principal manufactured goods was unsustainable, and the denial of deferral was rejected.

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Issues: Whether the turnover arising from sale of scrap, being a by-product of the manufacturing process, was eligible for sales tax deferral under the industrial incentive scheme and the eligibility certificate issued pursuant to it.

Analysis: The deferral scheme was framed to encourage industrialisation in backward areas and the term "product" in the Government order was construed earlier by the Court and the Supreme Court in a purposive manner. Where a manufactured by-product is a distinct commercial commodity generated in the course of production, its sale cannot be excluded from the incentive merely because it is not the principal product. The earlier order in the appellant's own case had already directed reconsideration on the footing that steel scrap formed part of the word "product" for the purpose of the eligibility certificate. The contrary view that the benefit was confined only to the principal manufactured goods was held to be unsustainable.

Conclusion: The sale of scrap was entitled to the benefit of sales tax deferral and the rejection of that benefit could not be sustained.

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